Bitcoin vs Ethereum: The Differences Explained

Looking to invest in crypto? It can be hard to know where to start, or what your next crypto investment should be.

That’s because on average, 33 new cryptocurrencies get created every week!

However, if you’re looking at purchasing crypto, either for long-term holding or for use as an alternative currency, your two big choices are Bitcoin and Ethereum. These are two of the most popular and widely used cryptocurrencies, so it makes sense to give them serious consideration.

But when it comes to Bitcoin vs Ethereum, which cryptocurrency is best?

The best crypto will always be up for debate, but if you understand the differences between Bitcoin and Ethereum, you can make a decision about which crypto you want to purchase.

Here’s what sets the two cryptocurrencies apart.

A Brief Overview of Bitcoin

Bitcoin is arguably the most well-known cryptocurrency. It was also the first. Bitcoin was released in 2009 by Satoshi Nakamoto, a mysterious person(s) who developed Bitcoin, prior to disappearing and forgoing their work on the cryptocurrency.

Bitcoin works on a blockchain network. Bitcoin transactions happen between Bitcoin wallet holders.

Bitcoin has a cap. The maximum number of digital coins that can be minted is 21 million.

After that, no more Bitcoins can be mined. That means no new Bitcoins will enter circulation.

However, coins will still be tradeable. That means Bitcoin will still be valuable, even when all Bitcoins have been mined.

Like other cryptocurrencies, Bitcoins are storable on physical hardware wallets. These are easily found online. However, not all retailers are trustworthy, so choose a known merchant such as The Crypto Merchant when shopping for wallets.

A Brief Overview of Ethereum

Ethereum was first introduced in 2013 via a whitepaper, but it wasn’t officially released until 2015. Ethereum is open source, comes with its own programming language, and runs on the blockchain. Ethereum is a product of programmer Vitalik Buterin, whose previous experience with cryptocurrency included writing for Bitcoin Magazine.

It’s a decentralized, peer-to-peer network, just like Bitcoin. It also has a large community and following around it, again just like Bitcoin.

The native cryptographic token that powers transactions is ether or ETH. Ether can also trade as a digital currency on exchanges or it can be held as an investment. It can also be used to purchase services and goods.

Key Differences

Both Bitcoin and Ethereum are types of cryptocurrency, but in many ways, that’s where the similarities end. Neither coin is necessarily better than the other, but each has its pros and cons.

Digital Currency vs Programmable Crypto

As previously mentioned, Bitcoin has a hard cap of 21 million tokens. No more are mintable at that point.

Ethereum however, has no cap, leading to an unlimited number of tokens.

While both serve as digital currencies, Ethereum is programmable. That broadens the scope of Ethereum, allowing it to be additional use cases for NFTs, DeFi, and smart contracts.

Transactions via the Ethereum network may contain executable code. However, data tied to Bitcoin transactions is only used for recording the transaction.

Since Bitcoin is not programmable, that means its use case is as a digital currency, and nothing else. For many, this limited functionality is a drawback.

Bitcoin is an alternative currency, and you can use it like any other currency. Out of all the cryptocurrencies, it has the best “brand recognition.” It also has great liquidity.

However, Bitcoin can be very volatile.

In contrast, Ethereum has smart contracts. Smart contracts are a key component of Ethereum’s functionality.

Smart contracts use if-then logic (i.e. if x happens then y triggers). When a certain condition is fulfilled, a smart contract allows an agreement to be executed.

Smart contracts can automatically trigger the next action in a workflow. Smart contracts don’t require supervisory oversight, so they can happen at any time worldwide. All it takes is for the configured program on the blockchain to recognize that the required condition has been met, and then the contract can be executed.

Other Major Differences

Another big difference between the two is the block time. Block time is the amount of time it takes to verify transactions within a block of the blockchain.

The block time of Bitcoin is minutes. However, the block time of Ethereum is only seconds. Block time will not always be the same, but so far Ethereum has a much shorter block time.

However, Ethereum has higher gas fees. A gas fee is the fee (in this case Ether) used to conduct a transaction on the network. Ethereum gas fees can vary because their calculation is via a dynamic formula.

Between the two cryptocurrencies, Ethereum also consumes much less energy. Recent updates to the Ethereum network have reduced energy usage dramatically.

One of the major criticisms of crypto is its massive energy demand and carbon footprint, so this is a big win for Ethereum.

Final Word on the Bitcoin vs Ethereum Debate

There’s a lot to the Bitcoin vs Ethereum debate. Bitcoin has the greatest recognition, and has a huge potential for growth, especially as we get closer to the 21 million cap. Ethereum has greater functionality due to smart contracts.

If you’re interested in investing in cryptocurrency, take the time to understand the pros and cons of each crypto. It’s not uncommon for crypto investors to hold multiple types of coins.

This article is just one of many crypto articles on our site. Check out the rest of the crypto section for more advice on building wealth with smart investments.